I am Forbes' Opinion Editor. I am a Senior Fellow at the Manhattan Institute for Policy Research, and the author of How Medicaid Fails the Poor (Encounter, 2013). In 2012, I served as a health care policy advisor to Mitt Romney. To contact me, click here. To receive a weekly e-mail digest of articles from The Apothecary, sign up here, or you can subscribe to The Apothecary’s RSS feed or my Twitter feed. In addition to my Forbes blog, I write on health care, fiscal matters, finance, and other policy issues for National Review. My work has also appeared in National Affairs, USA Today, The Atlantic, and other publications. I've appeared on television, including on MSNBC, CNBC, HBO, Fox News, and Fox Business. For an archive of my writing prior to February 2011, please visit avikroy.net. Professionally, I'm the founder of Roy Healthcare Research, an investment and policy research firm. In this role, I serve as a paid advisor to health care investors and industry stakeholders. Previously, I worked as an analyst and portfolio manager at J.P. Morgan, Bain Capital, and other firms.

The Tea Party's Plan for Replacing Obamacare

If the Supreme Court strikes down the entirety of the Affordable Care Act, or if Republicans succeed in doing it themselves in 2013, what’s the path forward for health care reform? Many of us have speculated on the topic. (I express some thoughts here; Paul Starr has a useful take from the liberal side.) Now, a new plan has come forth, backed by one of the most influential Tea Party groups, that contains some intriguing and original ideas for bringing cheaper health care to more people.

Two weeks ago, Paul Broun, a Republican congressman from Georgia, put forth his own bill for replacing Obamacare: the “Offering Patients True Individualized Options Now Act,” or OPTION Act. “I started this process before the Affordable Care Act was ever passed into law, to try to give an alternative [that would] literally lower the costs of healthcare for everybody,” says Rep. Broun, who doubles as a primary care physician back in his northeastern Georgia Congressional district. “I wanted to draft a bill that would free people up, without all the government intrusion.”

Significantly, Broun’s bill is backed by FreedomWorks, one of the most prominent Tea Party organizations. (FreedomWorks was formed by the merger of two older free-market groups, Citizens for a Sound Economy and Empower America.) ”We looked at it and said, ‘Wow, this is tea-party health reform,’” says FreedomWorks health policy director Dean Clancy. “No mandates. No new bureaucracy. No ‘universal coverage.’ No federalism violations. Just more freedom for patients. Everything’s optional. You really can ‘keep your coverage if you like it!’”

So, what does the OPTION Act do, and would it serve as an adequate replacement for Obamacare?

Broun’s bill is divided into five parts: (1) repealing Obamacare; (2) changing the tax treatment of health expenditures; (3) Medicare premium support; (4) reforms of EMTALA, the federal mandate that forces emergency rooms to care for people regardless of their ability to pay; and (5) allowing people to purchase insurance across state lines, and small businesses to band together to purchase lower-cost association health plans (AHPs). “It’s 51 pages,” says Broun. “It’s a very simple bill that lowers costs for everyone. Plus, we cover those who cannot afford it by putting in a policy to help the uninsured get care.”

The bill doesn’t directly address Medicaid, as Broun has co-sponsored another bill, the State Health Flexibility Act, that converts Medicaid into a series of block grants for the states.

Broun’s version of Medicare premium support

Broun’s approach to premium support differs in certain ways from the one in Paul Ryan’s Path to Prosperity. Ryan’s approach, which he developed in collaboration with liberal Sen. Ron Wyden (D., Ore.), only applies to people who are 55 years or younger, leaves seniors the option of sticking with traditional fee-for-service Medicare, and uses “competitive bidding” to determine the level of premium support that each retiree would use to buy health insurance.

Broun’s approach, on the other hand, would go into effect immediately. It contains no “public option” to remain in the traditional Medicare program. The reforms only apply to Medicare Part A, the hospitalization component of Medicare. And its premium support levels are calculated by a formula: 120 percent of the sum of the average premium and average deductible for individually-purchased insurance in a given area.

Another important element of the Broun plan is that it would allow seniors to opt out of Medicare, and seek out their own insurance instead. It’s not clear that an opt-out provision is compatible with the premium-support formula that Broun has conceived. You might worry that healthier seniors would be the ones who would choose to opt out, leaving sicker retirees on Medicare. Because premium-support payments would be tied to rates in the individual market, those payments might not keep up with the rising costs of caring for a sicker pool of patients.

“I am not at all worried about adverse selection from an opt-out,” says Clancy, “because Medicare’s subsidy and government-bailout guarantee make it simply too good to pass up for virtually all seniors. There was no adverse selection problem before 1993,” when the Clinton Administration unilaterally instituted a rule preventing Medicare beneficiaries from opting out of the program. “It’s just plain un-American to trap people in a monopoly government health insurance program, when the private sector could easily meet their needs and better than the bureaucracy can do.”

Making all health spending tax-deductible

The OPTION Act’s most significant reforms affect the tax treatment of health expenditures. As I’ve often written, the biggest inefficiency in the American health-care system is that the tax code discriminates against people who seek to buy health insurance for themselves.

Broun’s bill seeks to change this, in several significant ways. First, Broun’s bill makes all health expenditures tax-deductible. That is: under his plan, the tax treatment will be the same whether you get insurance through your employer, you buy it on your own, or you choose not to buy insurance and instead pay directly for your care.

Broun’s plan would revolutionize the insurance market, by incentivizing companies—particularly smaller ones and startups—to pay their workers directly in wages, and let those workers decide how to pay for their own care. It would eliminate the problem of pre-existing conditions, because individuals would be able to stay on their insurance plans when they change or lose their jobs.

Dramatic improvements to health savings accounts

The OPTION Act would also make significant changes to health savings accounts. In 2012, Americans with self-only coverage are allowed to deposit $3,100 tax-free in a health savings account. Individuals with family coverage can deposit $6,250. Broun’s plan increases these limitations to $10,000 and $20,000, respectively.

The current laws regarding HSAs, which were part of George W. Bush’s Medicare drug-benefit law, require HSAs to be associated with a high-deductible health plan, which must have an annual deductible between $1,200-$2,400 for individuals, or out-of-pocket expenses of $6,050-$12,100 for family coverage. The OPTION Act eliminates the requirement that HSAs be attached to high-deductible health plans, allowing all Americans to save money for a rainy day tax-free.

You might ask: what’s the point of HSAs if you can deduct any and all health expenditures? The point is that HSAs still encourage people to save money for future health expenses. The experience of Singapore has shown that HSAs are a far more cost-efficient way to pay for care than buying comprehensive insurance. They reduce “moral hazard” because, with HSAs, a patient has financial incentives to stay healthy, relative to traditional insurance.

The OPTION Act also introduces HSAs to Medicare, by allowing Medicare beneficiaries to contribute to an HSA, and allowing individuals to roll their pre-retirement HSAs over to Medicare.

The expenses involved in end-of-life care remain a big part of the discussion among health wonks. Left-of-center policy types might have gotten burned by the “death panels” charge, but under their breath, they continue to advocate government restrictions on access to wasteful care for people who are nearing death.

Broun’s plan takes the opposite approach. Under OPTION, individuals would be able to pass HSAs on to their descendants, giving them an incentive to avoid wasteful health spending, because they can pass the savings on to their spouses and children.

Intriguing reforms for charity care

One of the most interesting aspects of Broun’s initiative is its reforms of charity care. As the health wonks among you will know, a federal law called EMTALA forces hospital emergency rooms to treat anyone, even illegal immigrants, irrespective of their ability to pay. As a result, emergency departments suffer from overcrowding, and time wasted on dealing with non-emergency conditions, especially on behalf of those on Medicaid and those without insurance. This “free rider” problem, in turn, is the (rather shaky) justification for Obamacare’s individual mandate.

“If you go to any emergency room in this country,” says Broun, “you find it full of people who don’t have a real emergency. Illegal aliens in particular are using the ER in that capacity. It’s a tremendous financial burden for hospitals. Rural hospitals in particular are going out of business because of the EMTALA law.”

The OPTION Act includes two significant reforms to our charity care system. First, it gives physicians a tax credit (i.e., a subsidy) of between $2,000 and $8,000 a year for engaging in charity care, depending upon the amount of charity care they offer. “Today, I could be put in jail for giving charity care to a Medicare patient for free,” explains Broun. “What we’re doing is we’re taking all of those regulations out of the system.”

Second, it would allow emergency rooms to turn away patients, under EMTALA, that don’t have actual emergencies. “I had the experience of what every ER physician sees in this country,” says Broun, “which is people who aren’t having emergencies using the ER. They should be seeing their regular doctors.” This simple reform could do a lot to ensure that uninsured people with actual emergencies would get treated faster, with better outcomes, than they do today.

Limitations of the OPTION Act

There are three caveats to Broun’s initiative. The first is that it doesn’t have a CBO or JCT score. Typically, the Congressional Budget Office and the Joint Committee on Taxation don’t bother to score legislation that doesn’t originate from a member of the House Budget or Ways and Means Committees. Broun sits on neither. Getting an estimate of the bill’s fiscal cost, given its substantial changes to the tax code, would be critical to assessing its fiscal feasibility. “We’re asking outside groups to score it,” says Broun.

Second, while the bill achieves the important goal of equalizing the tax treatment of employer and non-employer health spending, it does so by expanding Americans’ incentive to spend on health care relative to other things. It’s widely thought that this massive subsidy of health spending drives up the cost of health insurance, and thereby makes insurance less affordable.

Third, it’s not clear how many people would gain insurance coverage as a result of Broun’s plan. A CBO analysis could provide one useful estimate of that kind. The OPTION Act would doubtless expand coverage, because the “young invincibles” who currently eschew costly, government-mandated insurance would be able to gain care through consumer-driven health plans and tax-deductible out-of-pocket spending.

From FreedomWorks’ standpoint, this is a feature, not a bug. The Tea Party group wants health-reform efforts to “focus on reducing costs and expanding freedom, not on expanding coverage.” But for those who regard universal coverage as a worthy policy goal, Broun’s efforts may be seen as insufficient. The remaining uninsured population will provide single-payer agitators with a rationale to continue their quest.

The way forward for Broun’s reforms

Despite these limitations, the OPTION Act contains some original and promising ideas for improving our health-care system. It would dramatically expand insurance options for those who can’t afford gold-plated, comprehensive insurance. It would encourage more people to combine health savings accounts with high-deductible, catastrophic insurance coverage: by far the most cost-effective approach to health insurance. It would make important reforms to the badly-designed EMTALA law, improving our system of charity care, and incentivize seniors to pass their health-care savings on to their families, instead of spending every last cent on end-of-life care.

Given that the most important aspects of Broun’s plans involve changes to the tax code, it will be important for Broun’s work to gain the attention of Rep. Dave Camp (R., Mich.), the Chairman of the House Ways and Means Committee. Camp and his colleagues are responsible for formulating tax policy, in the way that Paul Ryan’s Budget Committee is responsible for spending policy. If Camp incorporates Broun’s ideas into his budget, we’ll be able to gain some insight into how much they’d cost the Treasury, and how much they might expand coverage.

The OPTION Act may not be a cure-all for the ills of American health care, but it does offer a number of useful and original reforms that would make health care cheaper and more accessible. More people should take a look at it.

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Incorporate some form of equity into health insurance, something like life insurance has. Just for a start, say one month of equity coverage for every year of paid insurance. So if you have paid for ten years you have ten months of guaranteed coverage if you stop paying premiums. That would cover many if not most out-of-work illnesses and cover them moreso the longer you’re in the system and older and more likely to need such coverage. That creates a ‘carrot’ incentive for young and healthy to start buying insurance early on, as opposed to the mandatory beat with a ‘stick’ of ObamaCare (except, of course, for Obama cronies who are granted an exemption). And there’s a place where government subsidy can come into play in a positive way with government subsidizing the equity coverage.

If the Tea Party had courage, it would consider the following. There is a candidate worthy of office. And it’s a her, who could, if Americans spent time finding out, save the USA. Even Romney knows that, as shown in the Arpil 02, 2012, headline “Green Party presidential candidate Stein accepts Romney invite to debate rematch”

Dr. Jill Stein, the frontrunner in the Green Party presidential primaries, has accepted an invitation by Republican frontrunner Mitt Romney to join him in nationally televised debate. Romney issued the invitation yesterday, April Fools Day, in advance of his expected victory in the Wisconsin primary. “I’m still embarassed that Dr. Stein bested me the last time we debated,” said Romney, “I’m hoping she’ll give me a rematch so that the voters can see that I have some substance too. Really, I do.” Stein and Romney last faced off in the 2002 Massachusetts gubernatorial debates. Media accounts described Dr. Stein as the biggest winner of those debates, and in one case as “the only adult in the room.””

We should eliminate all the other mandates from prior administrations, starting with the 1986 rule that requires emergency rooms to provide treatment to people regardless of their means. The effect of that rule was to make health insurance about protecting money, not people. To ensure that hospitals could pass costs for the indigent on to the rest of us (a secet tax), we allowed hospitals to consolidate to the point where today the typical hospital market is a triopoly. Rigged markets gave providers an unlimited capacity to raise prices — which, being human, they abused. As prices soared to the heavens (largely to plump up provider paychecks) they became a pretext for leftists to promote ever-greater levels of redistribution. Ergo Obamacare. The original sin, however, was not Obama’s; it was Reagan’s. Simply repealing Obamacare is to repeat the mistake of Obamacare: treating the symptoms rather than the cause.

There are some sound idea in here, I need to research more to see the unintended consequences but I like what I see on the surface. I want to share an idea I have been promoting to the industry to reduce costs. Before I share it I need to explain the logic for it. The cost to process claims for third parties and the actual system used to do so creates immense added costs. Each payer has their own set of rules, each provider has several different payers they contract with and each insurance company has to create redundant processes by state, thus creating the same infrastructure costs, redundant labor pools, management pools and service pools. It is estimated the cost of processing claims totals 60 billion dollars a year. And of course these costs are passed on to patients in higher cost of care. So here is a proposal to fix this Eliminate restrictions on state by state insurance allow them to have one company selling to all states, so instead of 50 separate Blue Cross you have one. Then have all the payers or the government create a master secure claim processing portal, giving access to payers and providers in a secure manner. Standardize all processing for all companies, the same rules apply to all. Share the cost to build and operate this portal among all stake holders, payers and providers. Then have all claims processed through this portal, providers load a claim to file it, payers login and retrieve it, adjudicate it and the provider can go pick it up. Payment mechanisms already exist to make the payments electronically through existing financial clearing houses. The labor pool is shared by all payers or the transaction fees could cover all the costs of maintaining the portal as a non profit entity. This eliminates all redundancy, much expense and paper, improves claim processing and provider efficiency, lowers costs for all stake holders. The private insurance market wins, the provider wins and the patient wins. And all this technology already exists, it simply takes agreement and funding, and this could be funding the government could incent or even pay for, it would be a finite one time expense to build the portal and then it stays self sustaining. And the overall end benefit to care itself, eventually all health records, claims processed and medical records would be in one place. And we could also make EMR programs link to the portal so those records are moved to secure data storage centers. Thus the data for ACO or demographic testing is always available.

Since there is so much at stake and so many stakeholders involved this may have to be a mandate in some health care bill to get all parties to participate, getting consensus in this industry is very challenging.

this reads like a great idea. The family who has two wage earners can obtain the best plan for themselves. The employer can offer a pay plan that better compensates for the actual contribution of the employee (higher direct pay and the individual can obtain the best plan that fits their needs.) The individual will no longer be tied to a particular job and have more freedom to advance his career because he will own his insurance instead of his employer.

What simplistic nonsense. This is as off base as Obamacare. The idea that free choice, market forces and tax schemes will fix any part of the health care problem (which by the way is an inefficient, uncoordinated, too costly system of delivery) is absurd.

Just as so-called competition among insurers is not the issue, neither is allowing people to choose any plan they want or changing tax laws.

The fact is that obtaining health care and spending health care dollars is NOT like buying any other product or service, it is not subject to decision making based on dollars , it is emotional. Everyone is a consumer until he is a patient or a loved one is.

I administered health plans for hundreds of thousands of people over forty-eight years and I can tell you people are not capable of objective decision making in this area.

You are correct, and why? These people advocating this are NOT REALLY TEA PARTIES but GOP PACS… many GOP people are closet progressives. Just look at Newt who had a Center for Health Transformation plan just like Obamacare.

The original Tea Party was formed to fight against “taxation without representation.” With Obamacare, like it or not, we got ” taxation with representation.” The Tea Party just doesn’t like what we got. So do something about it. Elect new representatives to repeal or change the law. Don’t look to the Supreme Court to do it for you. The right of self-governance is the greatest liberty interest we have as a free people in a democratic republic. Demanding that the judiciary intrude upon our right of self-governance is antithetical to what the original Tea Party stood for.